Economic Update: 8-22-2014

The annual Fed conference in Jackson Hole, Wyoming, took place this week. Federal Reserve Chairwoman, Yellen, said the Fed is in no hurry to raise interest rates even as the labor market is improving. Market participants are watching for hints as to when the Fed will reverse an easy-money stance that has fueled stocks’ rally to record levels. The timing of a Fed rate increase remains unclear. While the unemployment rate has steadily declined, other gauges of the job market are harder to assess and may reflect continued weakness. These include high levels of people who have been unemployed for more than six months, many people working part time who would like full-time jobs, and weak pay growth. Record-low short-term rates will likely remain appropriate for a “considerable time” after the Fed stops buying bonds to keep long-term rates down. The Fed’s bond buying is set to end this fall.

30-YEAR MORTGAGE RATES FALL TO 2014 LOW. At 4.1%, today’s 30-year fixed rate mortgage fell from 4.12% last week . It’s less than half of the 30-year loan’s historical average, and the number of discount points required to get a 30-year loan are few fewer than it was even last decade. For the fifth time in six weeks, 30-year mortgage rates have dropped across all loan types including FHA loans, USDA loans, VA loans, and conventional loans backed by Fannie Mae and Freddie Mac. Mortgage rates have moved to a 14-month low; and 15-year fixed and adjustable-rate mortgage rates are down, too.

The average for a 15-year mortgage slipped to 3.23% from 3.24% last week and 3.27% three weeks ago. Mortgage rates have fallen in recent weeks after climbing last summer when the Federal Reserve began talking about reducing the monthly bond purchases it was making to keep long-term borrowing rates low. Mortgage rates often follow the yield on the 10-year Treasury note. The 10-year note traded at 2.43% Wednesday, close to its low for the year of 2.41%.

10 year US Treasury bonds, the benchmark interest rate has declined to 2.41% from 2.45% this week, but still up from last weeks 2.34%. Treasury bonds have outperformed practically all major asset classes in 2014. The Treasury’s auction of $27 billion of three-year notes Tuesday produced the lowest yield since April, as speculation that turmoil in Ukraine and Iraq may worsen fueled investor demand for safety. Economic reports out of Europe, and Asia were disappointing. The United Kingdom reported that although there has been gains in employment wages had fallen. Japan reported negative growth and a shrinking economy. Spain, Portugal, Italy also saw an unexpected stalling in their economies beyond what was expected. Japan saw a larger than expected decline, as did China. Russia showed that they had some slowing, but not as much as expected with the economic sanctions. All in all it was a poor week for the rest of the world as US economic reports were pretty good with the exception of Macy’s reporting that sales had fallen, leaving investors to wonder what retail reports are yet to come. The 10-year Treasury yield, which falls as prices rise, was down 2 basis points at 2.41%. The 5-year fell 2 basis points to1.61%, but still up from last week’s 1.567%. The 30-year yield dropped 3 basis points to3.19% after a successful sale of $16 billion in bonds at the lowest yield in a year.

The Treasury Department announced it will sell $93 billion in notes next week: $29 billion in two-year securities, $35 billion in five-year debt and $29 billion in seven-years. The amounts are unchanged from the July auctions of the maturities. The Treasury will also sell $13 billion in two-year floating-rate notes at an Aug. 27 auction.

U.S. existing home sales jump to highest level in 10 months. Purchases of previously owned U.S. homes unexpectedly rose in July to a 10-month high as low borrowing costs and an increase in inventory drew buyers. Existing home sales climbed 2.4 percent to a 5.15 million annual pace, the most since September, from a revised 5.03 million pace in June, the National Association of Realtors reported Thursday. The median forecast of 74 economists in a Bloomberg survey called for 5.02 million. The number of homes for sale were the highest in almost two years. The increase, the smallest annual gain in two years, comes after double-digit growth in 2013. The market is moving from being somewhat heated to a balanced market and we are returning to more moderate middle ground. The median price of an existing home rose 4.9 percent to $222,900 in July from $212,400 a year earlier, Thursday’s report showed. The number of existing properties for sale climbed to 2.37 million, the most since August 2012. At the current pace, it would take 5.5 months to sell those houses, matching the May and June reading. Inventory was up from 2.24 million a year earlier. Distressed property sales, including foreclosures, accounted for 9 percent of the total last month, the least since records began in 2008, the group said.

Data Quick-Southern California home sales fall, median price drops. Southern California home sales hit a three-year low for the month of July and the region’s median home price dipped to $413,000, DataQuick reported Wednesday. Hampered by rising prices, a limited inventory and a decrease in investor activity, sales of new and existing homes and condos in Los Angeles, San Bernardino, Riverside, Ventura, Orange and San Diego counties totaled 20,369 last month. That was down 1.4 percent from June and down 12.4 percent from the 23,253 homes sold a year earlier. The region’s median home price dipped 0.5 percent in July to $413,000, although it was up 7.3 percent from the year-ago price of $385,000.The June 2014 median price of $415,000 for the six-county region was the highest since January 2008 when it also stood at $415,000.

New home sales up 15.7 %. New-home construction in the U.S. surged to an eight-month high in July, lifting the stock market and prospects for a broader economic recovery. Housing starts jumped 15.7% from June to a seasonally adjusted annual rate of 1,093,000, the Commerce Department said Tuesday. Investors cheered the rise, which ended two months of declines and soared past expectations of a 965,000 rate. Builders’ optimism is picking up. If it continues, the uptick in construction could have sustained, broad effects on the economy.

Employment growth, rising property values and a decline in consumer debt are giving would-be buyers the confidence to take the plunge into real estate. Builders are also showing signs of life after a construction lull at the start of the year, a sign that the market’s momentum is sustainable. Fewer Americans than forecast applied for unemployment benefits last week, a sign the job market is making progress, another report today showed.Jobless claims fell by 14,000 to 298,000 in the week ended Aug. 16, according to Labor Department figures.

California gains 27,700 jobs in July. California’s unemployment rate was unchanged at 7.4 percent in July, and nonfarm payroll jobs increased by 27,700 during the month for a total gain of 1,371,500 jobs since the recovery began in February 2010, according to data released today by the California Employment Development Department (EDD) from two separate surveys. In July 2013, the unemployment rate was 9.0 percent. The unemployment rate is derived from a federal survey of 5,500 California households
U.S. Stocks Edge Lower due to Fed Meeting and Ukraine Tensions. The Dow closed down the week at 17,001.22, but up 339 points from last Friday’s close of 16,662. The S&Pclosed at 1988.40 down .20 for the day, but up from last Friday’s close 1955.06 The Nasdaqis up this week closing at 4,538.55, up 6.45 Friday and up 73.62 points from last weeks close of 4464.93.